Vietnamese Experts Call for Bond Market Development to Ease Pressure on Banks
Vietnamese experts say lowering banks’ funding costs can reduce lending rates in the short term. Easing the banking system’s medium and long-term financing burden will also require a more liquid bond market, a credible interest rate benchmark and long-term investors outside the banking system.
Vietnamese experts say the bond market should continue supplying funds to the economy when bank lending is disrupted and share the demand for medium and long-term financing. Nguyễn Tú Anh, Director of Macroeconomic Policy Research at VinUni University, said reducing banks’ funding costs could help lower lending rates in the short term, but a bond market with sufficient depth and liquidity is needed to reduce financing risks over time.
Vietnam’s bond market remains dependent on banks.（VietVance）
Banks remain the main investors in Vietnam’s bond market. Phạm Phú Khôi, Secretary-General of the Vietnam Bond Market Association, said households and businesses deposit money in banks, which in turn participate in the market by issuing and buying bonds and providing issuance, distribution and guarantee services. As a result, companies’ shift to bond financing may not significantly ease the banking system’s financing burden.
Nguyễn Tú Anh said Vietnam has yet to establish a reliable benchmark interest rate curve, which may lead banks to overestimate lending risks and raise interest rates. He said the limited supply of government bonds, coupled with strong demand from financial institutions, may depress bond yields and prevent them from fully reflecting the supply and demand for capital and associated risks. A credible government bond yield curve would help financial institutions price risk.
Đào Minh Tú, Vice Chairman and Secretary-General of the Vietnam Banks Association, said companies must demonstrate their financial strength and ability to repay debt, while making their disclosures more transparent. The secondary bond market must also allow investors to trade flexibly. Phạm Phú Khôi proposed developing long-term corporate bond investment funds to serve as major investors in bond offerings. Experts say that if long-term investors continue to come mainly from the banking system, simply increasing bond issuance is unlikely to ease banks’ financing burden effectively.
Source: VietVance
